1 eFX Daily colour

1.1 FX Spot

1.1.1 Overview

Asian markets are expected to open on a shaky note after President Donald Trump announced tariffs on all steel and aluminum imports. This has led to a drop in commodity currencies and a decline in Asian stock futures. The Australian, New Zealand, and Canadian dollars, as well as the euro, fell in early trading. Equity futures in Australia, Japan, and Hong Kong are also pointing down.

Trump’s comments have added to market jitters, with a 25% levy on steel and aluminum imports set to be announced on Monday. This comes ahead of Federal Reserve Chair Jerome Powell’s upcoming testimony, which will be crucial in assessing the impact of these tariffs.

SA still under pressure at the back of the expropriation bill.

The S&P 500 index fell by 1% on Friday due to tariff concerns and a decline in consumer sentiment. The dollar rose after jobs data showed a healthy labor market. Nonfarm payrolls increased by 143K, with the unemployment rate dropping to 4.0%.

In Asia, Chinese shares will be closely watched, especially in the tech sector, as the Lunar New Year spending boom may mask underlying deflationary pressures in the economy. Goldman Sachs economists noted that the seasonal boost in China’s inflation is likely to turn into a drag in February.

1.1.2 US

(Feb-06) US Jobless claims rose by 11K to 219K for the week ending February 1, staying relatively low. This level is consistent with pre-Covid figures, and private employment data indicates strong hiring in January. However, despite a calm January, several major companies have announced staff reductions for early February, hinting that the quiet period may be short-lived. USDZAR saw a slight rally after this to a low of 18.5740 on a 15min window.

(Feb-10) There has been a fallout in relations between South Africa (SA) and the United States (US) following the introduction of the land expropriation act. Despite efforts by SA to clarify the act and provide accurate information to the US, the US has decided to halt all aid to SA while an investigation is ongoing. This decision has negatively impacted the Rand, which has lost some of its recent gains against the USD. The ZAR, which saw a low at 18.32 last Friday (07 Feb), and we opened today trading above 18.60, which is the ZAR under pressure region. Additionally, the African Growth and Opportunity Act (AGOA) is now at risk, further straining economic relations between the two countries.

1.1.3 SA

(Feb-07) SONA - President Cyril Ramaphosa’s Medium-Term Development Plan aims for inclusive growth and poverty reduction, targeting over 3.0% economic growth through infrastructure investments and reforms in state-owned enterprises. Social measures include support for the unemployed and expanded education access. The plan also focuses on building a capable, ethical state, supporting black-owned businesses, and addressing water shortages with new infrastructure and efficient management.

(Feb-10) There has been a fallout in relations between South Africa (SA) and the United States (US) following the introduction of the land expropriation act. Despite efforts by SA to clarify the act and provide accurate information to the US, the US has decided to halt all aid to SA while an investigation is ongoing. This decision has negatively impacted the Rand, which has lost some of its recent gains against the USD. The ZAR, which saw a low at 18.32 last Friday (07 Feb), and we opened today trading above 18.60, which is the ZAR under pressure region. Additionally, the African Growth and Opportunity Act (AGOA) is now at risk, further straining economic relations between the two countries.

1.1.3.1 eFX Volumes

  • Overall volumes

(Feb-10) On Friday (07-Feb) we saw a turn from balance or net short USDZAR position to being net long USDZAR from clients. (*) This is not surprising given the recent growing tensions between SA and the US.

  • Price to volumes

(Feb-10) Latest implied topside is 18.65 but we could go higher if there is not indication of a de-escalation between SA and the US.

  • Liquidity hours across currency pairs
  • Currency positions

(Feb-10) Clients are now net-long USDZAR.

1.1.3.2 USDZAR levels

  • (Jan-31) There is still not enough ZAR supportive information, as such, we do not expect to trade below 18.40 anytime soon.
    • President Trump also threatened to impose 100% tariffs on the BRICS countries should they go ahead and move away from using the dollar.
  • (Feb-03) SA under pressure today following President Trump’s comment about the expropriation bill. We now see the ZAR levels at 19 and 18.60.
  • (Feb-04) Our range still at 19 - 18.60 with 18.60 being a critical pivot point for ZAR as it would be a confirmation of moderation in the rand.
    • We are seeing most activity at 18.70.
  • (Feb-06) The break below 18.60 seen yesterday has not yet been confirmed and can be considered as a knee-jerk reaction. We also note that currently we are trading below 18.60 given ZAR supportive factors at play:
    • Gold at all time highs, now at 2869.65.
    • DXY trading lower, now at 107.755.
    • JSE Top 40 near all time high at 78,558.2.
    • US initial Jobs shows growing unemployment, supporting ZAR to trade a low of 18.5314.
  • (Feb-07) Yesterdays SONA saw the market respond positively and the above ZAR supportive factors, among others, have strengthen the Rand to a low of 18.42.
    • This years volume weighted USDZAR rate is at 18.70 with a low of 18.30.
    • Recent trading volumes suggest that the range for ZAR is 18.60 - 18.40. This 20cents improvement on the lower bound and narrowing of the range signals our optimism on ZAR for a further move lower.
    • A move below 18.40 would be supported if US nonfarm payrolls under-shot, the market is expecting 175K.
  • (Feb-07) US initial Jobs signaled to growing unemployment, then we saw an under shot in nonfarm payrolls at 143K (vs exp. 175K) but the unemployment rate printed lower at 4%. The market found it hard to interpret this information and we saw ZAR hitting a low of 18.36 and a high of 18.50.
    • Given that ZAR has failed to break above 18.50 today, we expect to open next week trading 18.60 - 18.30 for ZAR.
    • Offshore clients remained net short USDZAR.

(Feb-10) There has been a fallout in relations between South Africa (SA) and the United States (US) following the introduction of the land expropriation act. Despite efforts by SA to clarify the act and provide accurate information to the US, the US has decided to halt all aid to SA while an investigation is ongoing. This decision has negatively impacted the Rand, which has lost some of its recent gains against the USD. The ZAR, which saw a low at 18.32 last Friday (07 Feb), and we opened today trading above 18.60, which is the ZAR under pressure region. Additionally, the African Growth and Opportunity Act (AGOA) is now at risk, further straining economic relations between the two countries. - Clients are now net-long USDZAR.

1.1.3.3 USDZAR spreads

  • (Jan-31) Good news continue to ran away from ZAR as we are seeing the market de-risk at the back of Loadshedding and Trump comments.
    • Spreads remain elevated
  • (Jan-31) ZAR extend gains today after news that tariffs on Mexico would be delayed for a month. We are now trading below the 18.80 lvl and are waiting for a break below 18.60 which would act as confirmation of easing pressure on the rand.
  • (Feb-06) US initial Jobs shows growing unemployment, supporting ZAR to trade a low of 18.5314.
  • (Feb-07) US initial Jobs signaled to growing unemployment, then we saw an under shot in nonfarm payrolls at 143K (vs exp. 175K) but the unemployment rate printed lower at 4%. The market found it hard to interpret this information and we saw ZAR hitting a low of 18.36 and a high of 18.50.
    • Given that ZAR has failed to break above 18.50 today, we expect to open next week trading 18.60 - 18.30 for ZAR.
    • Offshore clients remained net short USDZAR.
  • (Feb-10) There has been quite a number of developments on the weekend between SA and US which will see SA lose aid from the US.

1.1.4 Key events this week:

  • China’s retaliatory tariffs on US goods are scheduled to take effect, Monday
  • Fed Chairman Jerome Powell gives semiannual monetary policy testimony to Senate Banking Committee, Tuesday
  • US CPI, Wednesday
  • Fed Chair Jerome Powell testifies to House Financial Services panel, Wednesday
  • UK industrial production, GDP, Thursday
  • Germany CPI, Thursday
  • Eurozone industrial production, Thursday
  • Norges Bank Governor Ida Wolden Bache gives annual address, Thursday
  • Eurozone GDP, Friday

1.2 FX Volatility Update

1.2.1 Update

By Thuto Mukena - Institutional Sales Specialist (Jan-31)

  • Overview

It’s been a data-packed, headline-heavy week, with risk conditions swinging in all directions. The ZAR has had a choppy week, yesterday’s 25bps SARB rate cut sent the local unit in the red territory, reversing some of its prior session’s gains, leaving the pair to close the week at R18.5688/$.On the vol front, the 1-week volatility risk premium has compressed deeper into negative territory, highlighting that the market mispriced and underpriced this week’s risk conditions. USD/ZAR Implied vols also hover lower as we brace for an exit for this week , the 1W USD/ZAR implied vol tenor no longer trading at a premium over 1M. The tenor closed yesterday’s session 1.87 vol p.p below opening levels.

  • EM & G10

EM pairs saw mixed spot performance on the day, while most G10 currencies were offered, closing the session weaker. On the implied vol front, G10 implied vols largely tracked spot moves, with USD/CAD and USD/JPY 1-week implied vols standing out as the exceptions, firming by 145bps and 64bps from the open. Main event on the day was the ECB rate decision, EUR/USD 1-week implied vol dropped by 62bps, declining alongside spot in the aftermath of the ECB’s 25bps rate cut, which set the deposit rate at 2.75%. Key take aways from the press conference is that the central bank maintained a data-dependent stance on future cuts, emphasizing that policy remains restrictive while also flagging concerns about growth risks in the region.

1.3 Africa

1.3.1 Update

By sizwe Mfayela - Institutional Sales Specialist (Feb-07)

  • Botswana
    • President Duma Boko appointed Lesego Caster Moseki as deputy governor of the Bank of Botswana for a 5-year term.
  • Egypt
    • The International Monetary Fund is set to announce a new loan agreement with the North African nation, pending approval from the fund’s board. The loan is set ti be a Resilience and Sustainability Facility (RSF) – a loan to aid countries to tackle climate change.
  • Kenya
    • Everstrong Capital aims to issue a $1bio bond to fund its $3.5bio highway construction project in Kenya. The highway will connect Nairobi and Mombasa and is set to be 440km long.
  • Mozambique
    • The IMF is set to make a trip to Mozambique in the next coming weeks .
  • Nigeria
    • Nigeria 1Y treasury bills continue to see strong demand in the secondary market, trading 100bps lower from Wednesday’s auction clearing levels.
  • Senegal
    • Senegal and the IMF have been actively engaging on the country’s suspension of its programme with the IMF following Senegal being misreporting budget deficit numbers.
  • Tanzania
    • The African Development Bank (AfDB) has committed $2.5bio for infrastructure projects in the East African nation. The funds will be used for transport infrastructure including airports, railways and road construction.
  • Uganda
    • The Bank of Uganda left interest rates unchanged at 9.75%
  • Zambia
    • Finance minister Situmbeko Musokotwane says the country is considering signing a new IMF deal, as the current one expires in October. Musokotwane emphasised his office has not made a final decision as yet as they weigh costs and benefits to a new IMF deal but will continue with prudent economic management.
  • Zimbabwe
    • The Zimbawe central bank kept interest rates unchanged at 35% in efforts to tame FX market volatility. The ZiG has stabilised around the 26.40 levels against the USD.
  • Eurobonds
    • A very active session yesterday, both flow and headlines wise. Overall, cash trading two-way aside from idiosyncratic stories. SOAF opened weaker, going as much as 4-15bps wide, but retraced small off the wides as fast money demand came in. However, news of load shedding coming to an end near the need of the session helped the recovery already underway with fast money coming into buy the early weakness ahead of the State of The Nation address.
  • NIGERIA
    • The most active ticker yesterday with real money generally selling into the 10Y part of the curve - both outright and on extension cares. Locals took notice of how rich the 27-29s part of the curve has gotten were in to peel off bits into fast money and street demand.
  • GHANA
    • Two-way RM cares in the 29s and 35s.
  • MOZAM
    • The street has been dying to mark this one up, and today the news that the IMF will be visiting in the weeks ahead, as well as Total’s optimism around the LNG project saw them do so.
  • ZAMBIA
    • The 53s took a jump higher into the close on news the government is close to a new IMF program which according to the finance minister just needs the Government’s discussion and approval.

1.3.2 Economic data

Economic data releases